Hang on—Big Tech is remaking banking

Bank tech trends can make your head spin. So regularly longtime Tech Exchange Editor John Ginovsky does his best to “make sense of it all.”

They have been saying for years that technology is fundamentally changing banking—but now they really mean it.

“They” of course are the analysts, poll takers, and corporate observers whose job it is to chart the trends shaping the financial services arena. Just within the past few months many have come out with prognostications, both general and specific, to which banking leaders ought to pay attention.

In the interest of “making sense of it all,” here are nuggets from said prognostications.

Tracking the general trends

From Accenture—52% of the 300 banking executives polled expect to be working with new digital partners within their industry in the next two years. In addition to current technology challenges, 85% anticipate that the pace of technology change will increase rapidly or at an unprecedented rate over the next three years.

“The massive volume of data and existing partnerships that banks already have in place today are assets that banks need to leverage to their advantage in creating new business models,” says Alan McIntyre, senior managing director and head of Accenture Banking. “Digital optimization of the traditional bank business model could add 5% to ROEs, but if customers start migrating to new platform-based services outside of the banking sector, increased profitability from a shrinking business will be scant comfort to shareholders.”

From IBM—“Digital disruptors are forcing financial companies to re-invent themselves and rethink the speed of responsiveness to business and customer needs,” says Jayashree Venugopala, analyst at IBM.

“Today the competition is coming in from all sides—within the industry and from other industries. Agile start-ups and innovative fintechs not only increase the threat of losing customers but also impact business results. Financial institutions are left with no other choice but to push past the traditional boundaries and create a fresh bouquet of digital services for their customers.”

From PwC—Out of a survey of more than 2,100 company decision-makers in a variety of industries, including banking and capital markets, the three biggest decisions looming in the near future are: launching new products and services (31%); entering new markets (17%); and investing in IT (15%).

“Data can be an extremely underutilized tool, and a company’s capability to access the right data, at the right time, and then look at it through the right lens, can make or break a bottom line,” says Dan DiFilippo, global and U.S. Data and Analytics leader.

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From KPMG International—72% of CEOs of major companies expect that the next three years will be more critical to their respective industries than the previous 50 years. The most pressing concerns for CEOs in this period will be: customer loyalty (88%); impact of the global economy on their company (88%); lack of time to think strategically about the forces of disruption and innovation shaping their company’s future (86%); new entrants disrupting their business models (65%); and worry that their own company is not disrupting their industry’s business models enough (53%).

“These CEOs understand that their organizations need to be disruptors—and it’s now or never for them to do so,” says John Veihmeyer, chairman, KPMG International.

Getting down to specifics

And now to some of the specific technology trends, some of which admittedly overlap.

Augmented and virtual reality—According to Deloitte, the future of mobile is tilting increasingly toward wearables, especially as augmented reality and virtual reality solutions hit the market. Long the objects of science fiction fascination, the looming potential of augmented reality and virtual reality technologies lies in the enterprise with capabilities that could potentially reshape business processes, or fundamentally recast customer experiences.

Analytics—“We expect to see advanced analytics, particularly in areas such as big data, internet of things, and machine learning and automation, driving growth in the analytics business process services market in the future,” says Rajesh Ranjan, partner at Everest Group. “We also expect the market to change shape as solution providers adapt and evolve, specifically in terms of convergence—with providers making investments in prescriptive and predictive analytics to meet the growing demands.”

Blockchain—Greenwich Associates projects that financial service firms and technology providers around the world will spend more than $1 billion in 2016 in the race to bring blockchain to capital markets.

“A majority of the financial service firms and technology providers we interviewed are convinced blockchain will enable meaningful change across capital markets within five years,” says Richard Johnson, vice president in Greenwich Associates Market Structure and Technology group.

Bank branches—Advances in analytics, high-definition video, and virtual and augmented reality are combining to assist branch employees in more complex transactions and to cross-sell/upsell in a more personalized manner, says IDC Financial Insights.

“The time has arrived when the technology required to truly transform the branch has reached a point where the benefits can no longer be ignored,” says Marc DeCastro, research director, Consumer Banking Engagement Strategies, at IDC. “The end result of transforming the branch will be when the right mix of technology and personnel allows the bank to immediately engage with the customer, as opposed to the customer engaging with the bank, and both the customer and the institution can mutually reap the benefits.”

Millennials—This generation, it turns out, is not as fickle or anti-establishment, in the sense that they generally are fairly satisfied as consumers, according to a massive study by J.D. Power of 600,000 consumers (126,315 of whom are millennials).

Among the findings, though, are these: Customer service is critical to millennial loyalty; value for money is key; and privacy may be exchanged for targeted offers and personalized services.

“Our studies indicate that millennials are different from previous generations; however, it’s really the nuances of the customer experience that set them apart from the rest,” says Keith Webster, senior vice-president and general manager, service industries Americas, J.D. Power. “And it’s those nuances that are so critical for business leaders to know right now as they wrestle with the challenge of anticipating customer demand in an incredibly fast-moving marketplace where getting it wrong can have catastrophic effects.”

P2P payments—The global user base for person-to-person mobile money transfers will increase from about 193 million users in 2014 to 1.6 billion in 2019, according to the global analyst firm Ovum.

The total global user base for mobile payment segments will increase from 690 million users in 2014, to 4.77 billion in 2019. The total global transaction value generated by P2P mobile money transfers will increase from $15.2 billion in 2014, to $271 billion in 2019.

And the tech beat goes on, and on …

The pulse keeps pounding. Oracle, for example, finds that the internet of things will inevitably affect banking services, such as enabling a car owner’s account, stored on the car’s computer, to connect with a gas pump automatically, thus making the transaction hands-free from the owner’s perspective.

And Gartner, among other predictions, sees advances in camera and vision technologies that will enable retail spaces to instantly recognize individuals by face and voice across channels, thus improving the in-store experience.

And Forrester, again among other predictions, sees virtual assistants carrying on seamless customer service conversations.

It’s important, however, to circle around to what all this means for bank decision makers. It’s not only about the technology. It’s how it is implemented, and by whom.

Accenture’s McIntyre sums this up neatly:

“Implementing the right technologies to achieve digital transformation is only one part of the equation; banks also need to harness technology to enable their people to do the right tasks in a nimble and adaptable environment. A flexible workforce with evolving skill sets will help banks keep up with the rapid pace of change while staying close to customers. However, an agile and project-based workforce will also create many new management challenges for those used to a hierarchical model.”

John Ginovsky is a contributing editor of Banking Exchange and editor of the publication’s Tech Exchange e-newsletter. For more than two decades he’s written about the commercial banking industry, specializing in its technological side and how it relates to the actual business of banking. In addition to his weekly blogs—"Making Sense of It All"—he contributes fresh, original stories to each Tech Exchange issue based on personal interviews or exclusive contributed pieces. He previously was senior editor for Community Banker magazine (which merged into ABA Banking Journal) and for ABA Banking Journal and was managing editor and staff reporter for ABA’s Bankers News. Email him at jginovsky@sbpub.com.